​Jabong is losing 55 paisa to gain Re 1. It’s burning a hole in its pockets

At a nascent stage, the eCommerce industry in India is still to gain the break-even point. While plenty of money is pumped in to boost the sector, gross loss is something that’s making the companies grumpy. While gaining in bulk has been the formula for the online retailers, it’s certainly not the key to success.

Lifestyle eCommerce major Jabong.com has felt the heat of giving too much discounts. While it has doubled its revenue to Rs 811 crore during calendar year 2014, discounts have led to to a five-fold increase in losses toRs 160 crore.

As per a news report by The Economic Times, in the year before, the RockInternet-incubated company had posted a gross loss of Rs 32 crore on sales of Rs 344 crore, as per its annual report released on Tuesday.

The EBIDTA (Earnings Before Interest, Taxes, Depreciation and Amortization) loss counts to about 55 paise to get one rupee of sales. This has come down from 68 paise loss for every rupee earned in 2013. Ecommerce in India is at an early stage -- companies have to go through years of operating losses, given high initial investments as well as the incentives they provide in the form of discounting to attract consumers online.

"We believe there is substantial potential for operating leverage over the next few years to bring down losses. We assume etail gross merchandise value (GMV) to reach $50 billion by 2020, in line with our multi-factor approach-based estimates. We expect operating costs to fall 400 basis points, as a percentage of GMV, as operating leverage kicks in, by 2020," said a recent UBS report on Indian ecommerce. As per the ET report, Jabong, which is in its fourth year of operations, managed to cross the Rs 1,000-crore sales mark in terms of GMV or sale price charged to consumers at Rs 1,320.6 crore, up from Rs 511.4 crore a year before.

With this, Jabong's topline has outperformed those of brick-andmortar fashion retailers such as Zara, Levi's and Marks & Spencer, which have been in business in India for five to 10 years and clock around Rs 400-600 crore in annual revenue. The company noticed a rise in its sale, tahnks to host of factors including new brand launches and innovation in last-mile delivery. Its cash position, however, depleted from Rs 85 crore in 2013 to Rs 29 crore last year.